Wm. Morrison Supermarkets plc Is One Recovery Play I Wouldn’t Touch

Harvey Jones loves a long-shot recovery play, but he is still giving WM. Morrison Supermarkets plc (LON: MRW) a miss.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

I’m a sucker for a decent recovery play, but you can take these things too far. The idea of snapping up ailing supermarket chain WM. Morrison Supermarkets (LSE: MRW) is just too ridiculous, even for me.

I have a history of taking daft punts on struggling companies, and a chequered history at that. I bought BP too soon after the Deepwater Horizon disaster, and took an instant hit. I snapped up Tesco after its big share price drop in spring 2012, and I’m still waiting for the turnaround. I bought BG Group after it plunged 20% in November 2012, and it still hasn’t sparked into life. But Morrisons? Now that would just be silly.

Clean The Tables!

Briefly, a few years ago, in a sudden bout of expansionary confidence, Morrisons threatened to challenge rivals such as Tesco and Sainsbury’s. No longer just for Northerners, its stores started to spring up in the more affluent South. But I quickly realised that away from its Yorkshire heartlands, Morrison simply didn’t have what it takes.

The last store I visited was on a scruffy out-of-town retail park in Harwich, Essex, a year or two ago. Morrisons was housed in a cheap new-build box, and was tatty, ill-lit and cramped, while the cafe was a depressing vista of uncleared tables (although the checkout staff were strikingly friendly). It didn’t look like one for the future.

Now its future looks all used up. Like-for-like sales plunged a disastrous 7.1% in the 13 weeks to 4 March. I’ve never seen a supermarket figure anywhere near that bad. Same stores, same products, same customers, 7.1% sales drop. The damage to staff confidence alone must be crippling, let alone the bottom line. Usually, that type of figure of alerts my ‘recovery play’ radar, but that was just too much.

Cheap And Chipped

Anybody who has seen a nature programme will know that jackals and hyenas start by picking off the stragglers in the pack, and so it is in the supermarket sector, with Aldi and Lidl taking bite after bite out of sickly, limping Morrisons. Worse, they have dragged it back to their own cost-cutting territory, forcing Morrisons to slash prices on 1,200 products as part of its Love It Cheaper campaign. It hasn’t helped. Morrisons started the price war by cutting its own throat.

Sometimes my old instincts take over, and I look longingly at Morrisons’ share price, down nearly 30% in the past 12 months. Then I check out its P/E ratio, currently just 9.5 times earnings. Finally, I drool over its juicy 4.9% dividend yield, by far the yummiest thing about this stock. In my weak moments, these numbers scream “Buy Me!”. I’m weak, but I’m not daft. Morrisons has a long and hard road ahead of it. This recovery play is just too dangerous, even for me.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Harvey doesn't own shares in any company mentioned in this article. The Motley Fool has recommended shares in Morrisons.

More on Investing Articles

Mature couple at the beach
Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

The market is wrong about this FTSE 250 stock. I’m buying it in April

Stephen Wright thinks investors should look past a 49% decline in earnings per share and consider investing in a FTSE…

Read more »

Black father and two young daughters dancing at home
Investing Articles

1 FTSE 250 stock I own, and 1 I’d love to buy

Our writer explains why she’s eyeing up this FTSE 250 growth phenomenon, and may buy more shares in this property…

Read more »